Absolute Advantage A country can produce a product more efficiently than can another country. This can be determined by climate, resources, and location. Ex. Lobster Can you think of other examples?

Comparative Advantage The ability to produce a product relatively more efficiently, or at a lower cost. Opportunity cost determines this….how much would one country have to give up to produce a good? Ex. Oil Saudi Arabia

What does this mean in the real world? Columbian Coffee for US machinery Oil for military aircraft NAFTA tomorrow

Tariffs Protective Tariffs Revenue Tariffs High enough to protect less- efficient domestic industries. Ex. It costs $1 to produce a pencil in the US but only.35 in another country. How much would they tariff have to be to protect it? High enough to generate revenue but not prohibit the import. Duty taxes…not needed today. Look on page 232. Why is so little gained from this? Why doesn’t the government use it more?

Quota If foreign goods cost so little, then the government can limit the imports. In the past this has worked for cars. What about the future?

Arguments for Protection Protectionists Favor trade barriers that protect domestic industries Free Traders Favor fewer or even no trade restrictions.